Get up to speed with the latest developments in the World of Tax. This week, the author wonders whether it is time to write an obituary for the DRP. Also another body-blow on the reopening front should shake the Babus of Aaykar Bhavan out of their reverie. And yes, don’t forget to tighten your seat belt because the CBDT Chairman’s missive on recovery might just prompt the AO to demand that you pay up that long outstanding arrear
Fasten Your Seat Belts – Its’ Recovery Time
The CBDT normally goes into “recovery & collection” mode in March when they have to report the figures of tax collection to the mandarins of South Block. So, the Chairman’s letter of 25th July telling his juniors that “focus” on “concerted efforts in certain categories may expedite cash collection” came as a bit of a surprise. However, it seems just to be more a case of saber-rattling rather than anything serious. The Chairman’s tone seemed quite casual. There was no sense of urgency in it. No words to shake the Babus of Aaykar Bhavan out of their reverie. His use of the words “I suggest” was significant. Also, the suggestions appear to have been casually made. The Chairman said “more than 20,000 crores have been stayed by courts/ITAT” and that “counsels should be advised to get the stay vacated” by bringing “the direction of the Supreme Court in the Vodafone case” to the notice of the concerned authority. Well, all that one can say politely and with humility is that a tutorial on the working of the Tribunal and the Courts may be in order! Meanwhile the ground reality is that assessees continue to enjoy unlimited stay from the Tribunal despite the clear legislative intent to the contrary. This is thanks to the blunders of the department (see Dear Department, Thank You For Giving Us Infinite Stay Of Demand). Mr. Chairman, can you do something to rectify this please?
a common tendency amongst the AOs is to sign the s. 148 notice on the very last or penultimate day of the limitation period. Having signed it, the notice leisurely makes its way to the dispatch department where the Chaprassi will take it one fine day to the Post Office for onward dispatch to the assessee
Another thing that should engage the attention of the Learned Chairman is the directive by the Supreme Court in CCE vs. Doaba Steel Rolling Mills that a uniform policy should be formulated to regulate appeal-filing. If appeals are filed in the case of one assessee and not in the case of another, there is a case for allegations of mala fides on the part of the concerned officers observed the Court.
To its credit, the department has put together some sort of comprehensive guidelines to cure the malaise of delayed filing of appeals. The Guidelines, ambitiously called “Zero Delay Regime” is a step in the right direction to bring some order to the unholy mess that the department has now become. Of course, the top brass have to show that their contribution is not restricted to framing guidelines but effort is also taken to monitor compliance by the filed officers.
Mr. AO Sir, When did you post that s. 148 notice?
Did you know that the question whether a s. 148 notice has been issued within time or not has to be determined – not by the date when the AO signed the notice – but on the date on which he gave it to the Post Office for dispatch to the assessee?
Well, a common tendency amongst the AOs is to sign the s. 148 notice on the very last or penultimate day of the limitation period. Having signed it, the notice leisurely makes its way to the dispatch department where the Chaprassi will take it one fine day to the Post Office for onward dispatch to the assessee.
Well, this will be fatal to the department. The Gujarat High Court has taken the view in Kanubhai M. Patel HUF vs. Hiren Bhatt that the requirement in s. 149 that the notice must be “issued” within the limitation period means that the notice must have left the hands of the AO for onward dispatch to the assessee. And this means that the AO should have delivered the notice to the Post Office on or before the last date of limitation. A day late and the AO totally loses jurisdiction to assess the escaped income!
Of course, there is a well known distinction between “issue” and “service” of the notice. If the AO delivers the notice to the Post Office, he has “issued” the notice even though the assessee may never receive the notice. Still, the AO will have jurisdiction because s. 149 requires only the “issue” of the notice and not its “service”. This was laid down by the Supreme Court in R. K. Upadhyaya 166 ITR 163 (SC).
DRP … Time To Say Good Riddance?
The Dispute Resolution Panel (DRP) is a peculiar creature. Set up with the top brass of the department but cursed to be never able to give relief to the assessees. Why? Because the decisions of the DRP, if favourable to the assessee, are final and binding on the department. Which panel of departmental officers will have the courage or the temperament or the attitude or the whatever to bind the department forever with their decisions?
Of course, as always the assessees are one-up on the department. Knowing the futility of going before the DRP, why do the assessees still throng the DRP? Because it gives them an additional 9 months of breathing time to worry about the demand that will inevitably result from the assessment order. And if the order of the DRP is “laconic”, it becomes that much easier to get a stay on recovery of the demand from the Tribunal
Another aspect that is quite evident at the hearings of the DRP is the clear sense of resentment that the members of the Panel demonstrate at having to perform “double-duty”. One can’t blame the members of the Panel for this. After all, they are top-brass of the department with regular administrative responsibilities of running the department. To have to forcibly sit on a Panel that everybody knows is futile must be quite frustrating!
This frustration shows in their orders. The orders show that the DRP is in a hurry to get rid of the matter. No discussion, no deliberation but a simple confirmation of the stand proposed by the AO puts an end to the ritual of the proceedings.
This has got the DRP into trouble on a number of occasions. The DRP suffered the ignominy of being told by the Tribunal in GAP International Sourcing India Pvt. Ltd vs. DCIT 9 ITR 129 (Trib)(Delhi) that it should not pass “laconic” orders.
In Vodafone Essar, the Delhi High Court could barely hide its irritation and it used exaggerated politeness to “remind” the DRP that it was a statutory body and had to live upto expectations and could not pass “perfunctory” orders.
The unkindest cut came from the Uttaranchal High Court in Hyundai Heavy Industries Ltd vs. UOI which held that including the jurisdictional CIT or DIT as a part of the panel was likely to lead to a “likelihood of bias”. “Justice must not only be done but it must also be seen to be done” declared the Court solemnly even as it directed the CBDT not to include jurisdictional CITs and DITs as a part of the DRP.
Of course, as always the assessees are one-up on the department. Knowing the futility of going before the DRP, why do the assessees still throng the DRP? Because it gives them an additional 9 months of breathing time to worry about the demand that will inevitably result from the assessment order. And if the order of the DRP is “laconic”, it becomes that much easier to get a stay on recovery of the demand from the Tribunal. And "laconic" orders invariably get remanded to the DRP for passing fresh orders and all this is a welcome respite from the likelihood of having to pay the demand.
All this raises is the inevitable question: Why continue the charade of the DRP?
CA Vellalapatti Swaminathan Iyer